Four Key take-aways from MiFID II Reverse Solicitation for MiCAR Reverse Solicitation

Reverse solicitation in MiFID II and MiCAR

MiFID II provides for a reverse solicitation regime that allows third country firms to provide investment services (e.g., brokering of securities) to clients established or situated in the European Union. To apply, the service must be requested on the exclusive initiative of the client (so-called “Reverse Solicitation”). MiFID II requires EU Member States to implement a reverse solicitation regime in their national laws. If the reverse solicitation regime applies, no authorisation under the national implementation of MiFID II is required. MiFID II further describes that, where such a third‐country firm solicits clients in the European Union, it shall not be deemed to be a service provided at the own exclusive initiative of the client. This includes soliciting through an entity acting on the third‐country firm’s behalf or having close links with such third‐country firm or any other person acting on behalf of such entity.

MiCAR provides for a similar reverse solicitation regime. Where a client established or situated in the European Union initiates at its own exclusive initiative the provision of a crypto-asset service by a third‐country firm, the authorisation requirement does not apply. Since MiCAR, unlike MiFID II, is a regulation, it is directly applicable in each Member State and thus give no room whatsoever for different national treatment.

For MiFID II, the European Market and Securities Authority (ESMA) has already provided guidance on the provision of investment services by third-country firms in 2018 and published a reminder to firms of the MiFID II rules on ‘reverse solicitation’ in the context of the recent end of the UK transition period in 2021. Under MiCAR, by 30 December 2024 ESMA shall issue guidelines to specify the situations in which a third-country firm is deemed to solicit clients established or situated inside the European Union.

The reverse solicitation provisions under MiCAR have been drafted with the provisions of MiFID II in mind. They use a very similar wordings and MiCAR already takes some guidance on MiFID II into account. Thus, the two European legal acts are basically comparable with each other.

Key take-aways

From the MiFID II publications of ESMA on reverse solicitation, we believe that the following four key take ways can also be applied to reverse solicitation under MiCAR:

1. Third-country firms may not use other persons to solicit on their behalf

   Nowadays, there is a lot of advertisement for firms done by influencers and other persons acting on behalf of a firm. We deem it likely that the regulators will scrutinise the links between third-country firms and those influencers and other persons carefully.

   Already for MiFID II ESMA expressed the view that soliciting of EU clients is considered regardless of the person through whom the soliciting is performed: the third country firm itself, an entity acting on its behalf or having close links with such third country firm or any other person acting on behalf of such entity. This will mean that the third-country firm will have to carefully assess for which other parties it will be accountable for.
   
   

2. Soliciting does not only cover traditional advertisement

   Crypto service providers usually communicate via online channels, for example X (formerly twitter). As we have seen in the case of reported BaFin investigations against a DeFi wallet, a tweet might bring third-country firms into trouble.

   ESMA reported its view that every means of communication used can qualify as solicitation. For MiFID II, ESMA expressly mentions press releases, advertising on internet, brochures, phone calls or face-to-face meetings.
   
   

3. No offer of additional services

   Both, the reverse solicitation exemption under MiFID II as well as its MiCAR-pendant allow that the specifically requested service is provided (“shall not apply to the provision of that [crypto-asset] service”). Further offers of other regulated services by the third-party firm are not covered by the reverse solicitation exemption.
   
   

4. Contractual clauses or disclaimers are not sufficient

The third-country firm will not benefit from contractual clauses or disclaimers that state that the service is only provided on the request of the client. It is important that the service is factually only provided on client’s request.

For MiFID II, this was set out in the recitals as well as highlighted by ESMA. For MiCAR, the EU lawmakers deemed it worth to include such a statement in the article covering reverse solicitation.

Irrespective of this, it is important that the third-country firm maintains documentation on how the service was requested by the client to prove that it did not solicit the client.

Summary

Reverse solicitation under the current MiFID II regime as well as under MiCAR is important for third-country firms. Whether an authorisation requirement applies is nevertheless treated differently by EU Member States. We advise clients on regular basis in various EU countries whether their activities require an authorisation and fall under EU and national regulations. By doing so, we allow our clients to base their services on a firm basis and avoid the risk of providing services unlawfully.